Boston – September 28, 2026 -- Private investors have committed seven dollars for every one dollar the US government has put toward production funding for new-entrant defense companies, a gap that risks stalling next-generation technology before it reaches frontline forces, according to a joint analysis released by Bain & Company and the Aerospace Industries Association (AIA).
The report, titled "The State of Investment in Defense: Unlocking Growth," draws on 50 stakeholder interviews conducted between April and August 2026 with prime integrators, new market entrants, suppliers and investors.
Market capitalization of listed defense firms nearly doubled to $1.6 trillion since 2019
Aggregate capital availability is not the problem, the report finds. Market capitalization of publicly traded US aerospace and defense companies reached roughly $1.6 trillion in 2025, up from about half that level in 2019, while defense-related venture capital grew tenfold over the same period, from roughly $1 billion to around $10 billion.
Large prime contractors now trade at utility-like valuation multiples
Despite the capital influx, large publicly traded defense primes carry valuation multiples similar to utility companies, evidence the report says shows investors are still pricing the sector for low risk and capped returns rather than growth. That profile discourages the upfront capital risk needed to expand munitions and other high-demand production capacity.
Nominal defense budgets grow 3% to 5% annually against 3% to 4% inflation
Nominal defense budget growth of roughly 3% to 5% a year, combined with inflation of 3% to 4% and interest rates above 4%, is compressing margins that are already among the lowest of any large US capital-goods industry, the report notes.
Private equity buyout volume holds at just $1 billion to $3 billion a year
Private equity, a critical exit path for venture-backed defense start-ups, has largely stayed on the sidelines, preferring businesses serving both commercial and defense markets. Defense-focused PE buyout volume has held at roughly $1 billion to $3 billion annually, a small fraction of the sector's public-market value, putting early-stage investment growth at risk without a reliable liquidity path.
The US remains fully reliant on imports for 16 critical minerals
Upstream constraints compound the financing gap. The US remains fully reliant on imports for 16 critical minerals, most refining capacity sits outside the country, and sub-tier manufacturers of castings, forgings, semiconductors and precision components report some of the most acute capital shortages in the industrial base, according to the analysis.
"Existing investment and business models aren't sufficient in this new environment,